Tariffed Vision: A Frontline Perspective from a Machine Vision Integrator

Finding the Correct Tariff Code for a Product

Every product that moves across borders is assigned an HS code. HS stands for Harmonized System. The idea being that all countries agree that a camera is a camera.  But it isn’t so simple. In fact, it’s a herculean task to divide every product in the world into fixed categories, let alone get international agreement on those categories, let alone get every tariff taxpayer to agree what bucket their product falls in. A camera is HS code 9006, and a cinematographic camera is HS code 9007.  But what about a system with a camera? Is an iPhone HS code 9006, because it has a camera? It isn’t. Various electronics and electrical assemblies used in “data processing” are HS code 8471 and are tariff free. Optical inspection systems are 9031. But much of this is subject to interpretation. 

High tariff countries may or may not have exemptions. Because the categories are fungible, high tariff countries find that they have to impose taxes on subcomponents. Otherwise, for example, I will attach a camera to a steel ingot and import it as camera to avoid a steel tariff. The new tariff rules in the U.S. are similar and cover the raw materials, such as the aluminum or copper, in the part. Every part has lots of paperwork.

In a high tariff country, just to avoid the delays, an executive of one of my customers once flew down with the part we needed as a professional sample. Professional samples bypass customs and tariffs in most of these countries. That sample is probably still there. We got to install the professional sample into the machine. In theory, they were going to import a real one later and ship that one back or change the paperwork to reflect that it had been imported.

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In a high-tariff country, businesses adopt strategies to avoid or minimize tariffs. They want to pay for everything as an engineering service and put very low values on hardware. There’s some ambiguity here. In my view, it’s very fair to give a discount because your customer signed a support contract, but at some point, it all becomes a charade. What is the “declared value” every time you ship something? 

Tariffs Add Indirect Costs to Running a Business

Every time I fly into a high tariff country, I notice how much stuff the residents of that country have in their suitcases. The problem for their country is that the transaction now occurred elsewhere. In this case, instead of making any money from the tariff, the country just moved the economic transaction somewhere else, while spending money on airport security that takes forever, because now residents submit tax-return paperwork to enter back into their own country.

It’s cheaper to transact outside the tariff zone and it’s assumed that it will be. It’s tough to win business when potential customers assume you are more expensive, and you cannot produce evidence that the expense is worth it. In the prior world, if I had a higher bid, it was clearly because the customer would get the best software developers and a variety of other benefits. When companies have plants inside and outside of a tariff zone, they buy everything new outside the tariff zone and then ship used systems into the tariff zone. The declared value of a used system is obviously significantly less. 

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To be honest, I can’t cite what exactly the tariff rates are in any of these tariff countries. No one does the math on every item as a consumer. It just becomes part of the culture not to buy certain things in certain places. This is similar to not buying things at the airport unless one must or choosing to pay by check or EFT on a larger transaction to avoid the 2-4% fee on a credit card.

On another level, many an engineer with limited time has been tasked with this very manmade problem. Since the latest rates were announced with the August 1st deadline expiring, there was much discussion at a multinational customer’s site in the U.S. about how to respond. We talked about whether to disassemble a machine in Canada and import the components and then reassemble it here in the U.S. Rewrite the contract to spell out a lot of the cost as engineering services or leave the machine in Canada and wait for a deal.

The problem: At a high proportion of the total cost of the system, the tariff would wipe out a lot of my customer’s capital expenditure budget for 2026 if the system is imported now. Meanwhile, an even bigger problem is that the engineering services required to get the system online to improve operations aren’t happening. In addition, the next projects aren’t getting approved while this gets sorted out. The executives also have to figure out how many sales they will really have once they start passing along other tariffs on their input goods to their customers. Maybe they’ll conclude they don’t need the increased capacity the machine will deliver.

The argument for tariffs is often to return to a simpler time. The supply chain might be too globalized and complex with too many layers of contracts. The number of manufacturing operations that have gotten moved to save hypothetical nickels per part on a spreadsheet is shocking. That said, I’ve over-engineered things, too, to then come back, simplify it, and really solve the problem. I think post supply-chain crisis caused by Covid, people have realized they overengineered the supply chain. Simplification has been slowly coming when people see obvious opportunities to simplify. The last few months of tariffs have not been simple.

Long term, running a world with two parallel zones, divided by an artificial line, with tax paperwork required to cross the line will never be simple. If we just let things simplify on their own, I think they will. The supply chain isn’t free, and not all chains are equal.  Businesses have realized that and will look for solutions that reduce its complexity. I’m not sure a tariff divide creates that. As someone once said, a house divided cannot stand.